CALGARY — Layoffs at Talisman Energy Inc. announced Wednesday have put an exclamation point on the dramatic fall from grace of a once high-flying segment of Alberta’s oil and gas industry, while raising the prospect of additional pain for producers grappling with low commodity prices.

Calgary-based Talisman, which has cut its 2013 capital budget 25% to $3-billion and plans to raise roughly $500-million this year through asset sales and joint ventures, said 90 employees in its Calgary office were being let go because of low North American gas prices and spending reductions.

I think Encana’s going to be next

A surge in North American shale gas production has flattened prices for the commodity, eroded producer profits and accelerated a shift toward more valuable petroleum liquids such as propane, butane and ethane. The job cuts at Talisman, while only a small portion of its 1,500 employees in Canada, could be a harbinger of things to come as life “gets ugly” for Canadian companies facing a shrinking export market in the United States, said Edward Kallio, director of gas consulting at Calgary-based Ziff Energy Group.

“I think Encana’s going to be next,” he said in a telephone interview. “A lot of their activity is in the higher cost plays. They can’t make money at these prices in the basin.”

Canadian producers, he added, “are in real trouble here until we get [West Coast export capacity] and we get some more demand, which will cause companies to turn drill bits and they’ll be able to recover their full-cycle costs again.”

The silent drop-off in Alberta’s natural gas business — itself a sharp contrast to the public debate underway about who and what caused the province’s so-called “bitumen bubble” — has been precipitous.

A former royalty breadwinner, natural gas revenue collected in the first nine months of 2012 totaled $345-million, the province said this week in a third-quarter fiscal update. That’s $591-million below forecasts and less than half of what the province collected in taxes on sales of tobacco.

In 2005-06, before shale gas took off and after North American prices soared as hurricanes knocked out production in the Gulf of Mexico, natural gas royalties for the entire year filled provincial coffers with $8.4-billion.

The party’s over in Eastern Canada and the party’s over in the Lower 48 . . . And it’s going to get worse

Today, Western Canadian gas production has fallen to roughly 13 billion cubic feet per day from 17 bcf/d a decade ago, Mr. Kallio said. Exports have shriveled as the U.S. — Alberta’s No. 1 market — and Eastern Canada rely on domestic shale production.

“That says it all. We are just shut out of those markets. Literally the party’s over in Eastern Canada and the party’s over in the Lower 48,” he said. “And it’s going to get worse.”

The Canadian Association of Petroleum Producers has seized on the deteriorating environment for Western Canadian gas producers to appeal for tax breaks it says are needed to help kick-start development of liquefied natural gas infrastructure on Canada’s West Coast.

It wants LNG projects treated as manufacturing plants, which would enable them to receive a 30% capital cost allowance, up from 8% currently, under Canadian tax provisions.

At the same time, the B.C. government has announced plans to tax the upstart industry with a special levy. Details are fuzzy, and the first tanker-loads of frozen gas are years away, but export proponents “will need to understand what it means before they make their final investment decisions,” said Geoff Morrison, CAPP’s manager of B.C. operations, referring to the province’s plans.

He said LNG is “incredibly important” to diversify Canadian export markets. “Our exports to the United States are off 16% in the last five years,” he said. “B.C. has been largely insulated from that because there’s been a lot of activity and interest in the Montney [basin], but without that diversification we probably won’t see any significant growth in the basin.”

That in turn could deepen the pain felt by gas producers, many of whom could hold the line on staff reductions on hopes prices will rebound from historic lows in the next two years, said Mike Tims, chairman of Calgary investment bank Peters & Co.

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